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Don't fight the Fed. And when the Fed is pushing junk bonds, don't fight junk bonds.

This column was reminded of that throughout 2012, as the high-yield market tested previously reliable limits for yield and price. Early last year this column cautioned that the average junk-bond yield had dipped below 7% ("A High Point for High-Yield," March 10, 2012), which historically marked a market-yield floor. Sure enough, prices subsequently fell and yields rose. That process repeated in May.

Then came August, when the yield dropped below 7%—and stayed there. Prices kept rising, to 104.8 cents on the dollar by year end from 98.1 last January, per a benchmark Bank of America Merrill Lynch index, while the average yield fell to 6.1% from 8.2% in that time. Junk bonds returned 15.6% in 2012.

Amazingly, junk bonds have barged headlong into 2013 and show no signs of slowing down. The average yield has fallen below 6% for the first time ever, to 5.8% at last check, while the price has hit a record 105.4 cents. Less than two weeks into 2013, junk bonds have already returned 1.2%.

The Federal Reserve has propelled this run by suppressing interest rates in the name of growth, pushing yield-starved investors into riskier, higher-yielding assets like junk bonds. But as Richmond Fed President Jeffrey Lacker said in a New York Times interview last week, we're at the limits of our understanding of the effect of monetary policy, and "sometimes when you test the limits you find out where the limits are by breaking through and going too far."

We're surely testing the limits of our understanding of the junk-bond market. Issuers aren't complaining, but ultra-low yields will take a longer-term toll on investor income. For now investors are increasingly exposed to potential price losses because many junk bonds are callable by their issuers at 103 cents on the dollar.

"While we see ample opportunity in the current high-yield market, we have preached on numerous occasions that this is not an index trade," wrote Heather Rupp, director of research at Peritus, last week.

Could the bull run continue? Looking into 2013, most bond-fund managers say credit risk—the risk that bond issuers will default, which is highest for junk-rated companies and the reason for their bonds' higher yields—is a non-issue. The U.S. high-yield default rate stands at just 3.2%, and Moody's expects that to drop to 3.0% by year end.

Meanwhile, duration risk, which measures the impact on bond prices of any rise in interest rates, remains uncommonly acute for longer-dated, higher-quality bonds.

But Martin Fridson of research firm FridsonVision says junk bonds don't adequately compensate investors now. The average junk-bond risk premium, or spread over comparable Treasury yields, fell below 500 basis points (5.0 percentage points) last week for the first time in eight months, to 494 now. Fridson says his current fair-value estimate is 648, and that the gap between the two "qualifies as an extreme overvaluation."

AFTER THEIR SELLOFF A WEEK AGO, Treasury bonds treaded water this week. The 10-year yield dipped to 1.866% Friday from 1.903% a week earlier, and the 30-year yield fell to 3.045% from 3.1%.